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Green Climate Fund prepares first of $US100b capital raising

The new head of the Green Climate Fund, charged with disbursing some of $US100 billion ($106 billion) a year pledged to poor countries affected by climate change, is readying an initial capital raising to conclude as soon as 2014.

“The desirable scenario is that some time in the third quarter of 2014 we would successfully conclude what we are calling an ad-hoc pledging process, the equivalent of the first financial close,” Hela Cheikhrouhou said.

Cheikhrouhou declined to specify how much money has been targeted. The timing depends on the fund's board of directors, which is meeting next month, she said in an interview from temporary offices in Bonn before the fund relocates to Songdo near Seoul.

Developed countries meeting at United Nations climate talks have pledged $US100 billion a year to help poor countries cut their emissions and cope with climate change. So far donors have contributed $US7.5 million for start-up costs to the GCF, which will be established over the next several years.

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The GCF may help make climate finance from about 40 richer nations to 150 developing nations more efficient, said Sam Bickersteth, chief executive of the Climate and Development Knowledge Network at PricewaterhouseCoopers LLP in London.

The current system is like “spaghetti soup,” he said today in an interview in London. The GCF is important “because it will catalyse finance, not because it's the facility through which all money will flow.”

Spurring markets

The funding may spur wind and solar farms, renewable-energy subsidies like feed-in tariffs, or carbon taxes and markets, depending what emerging nations prefer, said Cheikhrouhou, a Tunisian national who took up her appointment 10 days ago. “When you are an institution with grants and concessional loans to give away, you will typically want to give them in the most creative way to catalyse the maximum amount of investment.”

UN envoys from almost 200 nations will meet in Warsaw in November, the latest in a series of meetings to work on a climate-protection deal to be set in 2015 and start in 2020, the last year with targets under the Kyoto Protocol. Richer and poorer countries have so far disagreed about how best to proceed.

It's too early to speculate how much the GCF will raise, Cheikhrouhou said. The 24-person board, led by South African representative Zaheer Fakir and Australian Ewen McDonald, meets in Paris on October 8 to shape further details of the capital “mobilisation” and set more rules governing how money will be disbursed.

Korea contribution

South Korea, listed as a developing nation in the 1992 UN Framework Convention on Climate Change, had contributed the most to the fund as of June 30, at $US2.1 million, and has pledged $US40 million. Germany, the U.K. and Sweden are among others who have contributed, according to a statement on the fund's website.

The board is also debating governance for a private sector facility that may sit under or alongside the GCF, according to its website.

Pension funds and other private investors hold the key to supplementing government cash to transform energy markets and industries, including agriculture, away from fossil fuels without threatening economic growth, Cheikhrouhou said.

Cheikhrouhou became manager for private infrastructure & public/private partnerships at the African Development Bank Group in 2007, where she boosted finance activities across the continent, including 168 million euros ($241 million) for the first phase of the planned Ouarzazate concentrated solar project in Morocco. The plant will be the largest in Africa, according to Bloomberg New Energy Finance.

Citigroup risks

That plant will help diversify away from mainly fossil-fuel energy production in the country, which imports almost 97 percent of its needs, according to AfDB's website. Cheikhrouhou previously worked for the World Bank and for Citigroup Inc., where she helped manage African market risks.

“I don't have a strong preference on whether the private sector should be able to lend us money directly or not,” Cheikhrouhou said. “If private investors don't make a contribution to the fund directly, they will definitely be important players in the projects and programs that are ultimately going to benefit from the contributions in the fund.”

The fund's first few projects will be key as it tries to build a reputation for making climate finance more efficient and convince richer nations to give up piecemeal direct spending, said Anthony Hobley, president of the Climate Markets & Investment Association, a lobby group in London supporting carbon markets. “They will be judged at their success at leveraging private money,” he said today in an interview.

While progress setting up the fund may seem slow, it's coming together quite quickly, he said in London. “Those used to UN processes are amazed how fast it's going.”